The USD/JPY pair exhibits notable volatility while demonstrating resilience, currently positioned just beneath its eight-month peak at 154.49. This stability is driven by optimism surrounding a potential resolution to the U.S. government shutdown, which counters the renewed caution emerging from Tokyo. During the Asian session on Monday, the pair was observed trading in the range of 153.90–154.10, buoyed by enhanced fiscal sentiment and increasing Treasury yields, while the yen remained under pressure due to Japan’s policy ambiguity. The prevailing sentiment in Washington remains a key factor influencing the short-term trajectory of USD/JPY. Reports indicate that the U.S. Senate has voted 60–40 to advance a bipartisan spending bill aimed at reopening the federal government. This development has bolstered the dollar and eased risk sentiment following a prolonged period of fiscal stagnation. The suggested funding initiative aims to sustain operations until January 31, 2026, thereby guaranteeing ongoing financial support for essential programs including SNAP and Veterans Affairs. The development comes in light of remarks from President Donald Trump, who conveyed optimism that the deadlock was “very close to ending.” The reduction in fiscal risk has sparked renewed interest in Treasury purchases; however, the 2-year yield continues to hover around 4.68%, indicating that traders still expect a relaxation of Fed policy in December.
As the government reopens, the anticipated release of postponed economic data is on the horizon, prompting investors to focus on the Federal Reserve’s upcoming December meeting. Data indicate that the likelihood of a rate cut increased from 63.0% on October 31 to 66.9% on November 7, suggesting a softening macroeconomic environment. Officials such as Mary Daly and Alberto Musalem emphasized the strength of current economic conditions, yet both suggested that the inflation rate, currently around 3.0%, may warrant a prudent strategy moving forward. The discrepancy between market anticipations for rate reductions and the Fed’s cautious approach results in USD/JPY fluctuating within a tight range, as traders evaluate the opposing influences of monetary easing and robust U.S. economic growth. Across the Pacific, the Bank of Japan persists in delivering mixed messages. Junko Nakagawa highlighted the necessity for policy decisions to be made with careful consideration in light of the uncertainties surrounding global trade, especially regarding tariff policies. The BoJ’s Summary of Opinions highlighted internal divisions among policymakers: out of thirteen, only five supported a hawkish bias, while the others advocated for patience to assess the effects of corporate wage increases and Prime Minister Sanae Takaichi’s new economic agenda. The central bank reiterated its perspective that inflation may stabilize around 2% by the end of 2026; however, it is essential for wage-driven demand to demonstrate sustainability first. This prudent approach has extended the yen’s depreciation. The hesitation of policymakers to indicate a tightening stance results in persistently negative real yields in Japan. The 10-year JGB yield is currently positioned around 0.96%, with the U.S.–Japan spread exceeding 370 basis points, which continues to exert significant upward pressure on USD/JPY. Japanese officials are once more expressing apprehension regarding the depreciation of the yen. Finance Minister Katayama emphasized that authorities are “watching FX moves with a high sense of urgency,” particularly as the pair remains consistently above 154.00.
Historically, verbal interventions increase when USD/JPY surpasses 154.20–154.50, with actual measures frequently initiated if speculative momentum escalates past 155.00. Market participants remember that in 2024, a synchronized effort by the Ministry of Finance resulted in a 1.8-yen intraday reversal, highlighting the government’s readiness to uphold psychological thresholds. Market positioning continues to reflect a bias towards long-USD exposure, as evidenced by data indicating net yen shorts at 118,000 contracts, approaching a two-year high. From a technical perspective, the USD/JPY chart exhibits a narrowing descending triangle, characterized by successive lower lows against a flat top near 154.40, which corresponds to the 76.4% Fibonacci retracement of the 2025 high-to-low range. The 21-day moving average coincides with immediate support at 152.50, with further support located at 151.60 (61.8% Fib). Momentum indicators are indicating initial signs of fatigue — the RSI has decreased to 49, and the MACD histogram has shifted to negative territory, suggesting a deceleration in bullish momentum. A daily close beneath 152.50 may initiate a more significant correction towards 150.90, whereas consistent closes above 154.40 would pave the way to 155.00 and the April peak of 155.23. Volatility is currently subdued, as implied one-month options reflect a 7.6% annualized movement, suggesting a strong belief that the BoJ will refrain from any immediate intervention. The disparity in policy between the U.S. and Japan remains a key factor influencing medium-term trends. The Fed’s gradual easing bias, supported by weak labor data and a decline in inflation expectations, stands in stark contrast to the BoJ’s extremely slow normalization process. Household consumption in Japan, accounting for 55% of GDP, continues to exhibit sluggishness even in the face of increasing nominal wages. In September, household spending experienced a decline of 2.7% year-over-year, representing the seventh consecutive month of decrease.
The current lack of robust domestic demand diminishes the rationale for tightening measures and reinforces the long-term bearish outlook for the yen. In the U.S., the fiscal stability resulting from the shutdown agreement may lead to an increase in Treasury issuance, which could result in a steeper yield curve. The 10-year yield, currently around 4.39%, continues to be high, enhancing the appeal of dollar carry trades. The spread advantage facilitates ongoing capital movement from the yen towards higher-yielding U.S. assets, maintaining USD/JPY above the 152.00 threshold even in the face of technical overbought indicators. Institutional flows indicate a measured sense of optimism regarding the dollar. Hedge funds continue to hold a net long position in USD/JPY; however, there has been a noticeable uptick in demand for downside protection among option traders. This is evidenced by the narrowing of 25-delta risk reversals, which have shifted from -0.38 last week to -0.23. This indicates a balanced approach to mitigate risks associated with possible intervention or an unexpected dovish stance from the Fed. In the current landscape, Japanese corporations are capitalizing on the depreciated yen by repatriating profits and securing forward contracts at approximately 153.50. This strategy introduces periodic supply pressure, effectively moderating the pair’s upward movements. The recovery in global equities, coupled with declining commodity prices, has led to a diminished demand for the yen as a safe haven. The Nikkei 225 increased by 0.9%, approaching 40,650, as energy import expenses fell in light of Brent crude’s drop toward $84.70 per barrel, alleviating concerns regarding Japan’s trade deficit.